Five Ways Canadian Small Business Owners Can Reduce Their Tax Liability

Owning a small business comes with no shortage of responsibilities and to do lists. Often, one of the most dreaded tasks is accounting. However, it is also one of the most important. Furthermore, proper accounting practices can not only help you head into tax season prepared but, can also provide you with valuable information to help reduce your tax liability and save money! Sounds like a win-win to us. Here are some strategies you can implement today to help lower your income tax.

1. Keep your receipts

Often, small business owners are advised to track all of their business expenses in preparation for tax season. Tracking is important, but, it’s not enough. You will also need to ensure that you have original documentation of your purchases. This means, you’ll need receipts – either paper or digital – to support your claim. Be sure to hold on to all original receipts related to expenses that help you do business. Whether it’s a coffee with a client or a new software subscription, hold on to it!

2. Contribute to your RRSP and TFSA

Contributing to your RRSP and TFSA are both great ways to reduce your income tax. RRSP contributions can even be saved and carried forward to the following year. Saving these contributions for a year where you are expecting a higher income can help you save even more.

If you have made the maximum allowable contribution to your RRSP, you can begin contributing to a TFSA or ‘Tax Free Savings Account’. TFSAs help shelter your income from taxes. Even better, both income and capital appreciation are tax free within the TFSA.

3. Donate to Charity

Donating to charity is a great way to give back but, it’s also an excellent way to help you earn tax credits. If you are looking to earn tax credits through your charitable donation, make sure that you are giving your donation to a registered Canadian charity. Donating to charities who are not registered, International charities as well as political parties will not earn you tax credits.

4. Claim your Capital Cost Allowance (CCA) at the Right Time

Small businesses must deduct the cost of depreciable property they’ve acquired over a period of years. This is done through the Capital Cost Allowance or CCA. It’s important to be aware that you are not required to claim the deduction in the year that the property was acquired.  You can use as much of the CCA claim as you would like to and carry forward the rest to the following year. It is wise to carry it over it you are expecting a larger income tax bill in the following year than the current year.

5. Hire a CPA

Of course, we would be remiss if we didn’t touch on this important topic. Business accounting and taxes can be complicated. It is an especially daunting task to handle while you are trying to operate all other aspects of your business. In addition, you may not be aware of all of the easy ways you could be saving on your tax bill. For these reasons, we recommend hiring a certified professional accountant and/or bookkeeper to assist you in preparing for tax season and filing your taxes.

If you’re feeling overwhelmed this tax season, contact us! With over 20 years of experience, we have the knowledge and expertise to help you get a handle on your business accounting and taxes!

 

5 Tips to Help Freelancers Prepare for Tax Season

Tax season can be a nightmare for freelancers and small business owners. But, with proper preparation and a little help, it doesn’t have to be so painful. Here are our tips to help you prepare for smooth sailing all the way through to this year’s tax deadline!

1. Track Your Expenses

The single most important thing you can do as a freelancer to help prepare yourself for tax season, is track, track, track and track some more. From income to expenses, to HST/GST that you charged and HST/GST that you paid, it’s all important information to have organized and at your fingertips prior to tax season.

There are many ways you can do this. Your first option is to track yourself. You can do this with an excel spreadsheet or accounting software. But, as your business grows it is worth considering hiring an accountant or bookkeeper.  This is a great way to ensure that tracking is done properly by a certified professional with experience. Ultimately, it helps make tax season a breeze.

2. Think Ahead

 Many freelancers get blindsided by income tax in their first year of business because they weren’t thinking ahead. Avoid this mistake by setting aside about 30% of your revenue into a savings account each month. This will help you slowly chip away at the income taxes you will likely owe come April instead of scrambling to pay them at the last minute.

3. File Your Taxes On Time

Speaking of tax season, don’t forget important deadlines. The standard Canadian tax deadline is April 30th. If you are self-employed the deadline to file your taxes without penalty is June 15th. Keep in mind, however, that you must ensure that you pay any taxes owing by April 30th. Make sure that you abide by these deadlines so you don’t end up paying interest or penalties on what you owe!

4. Invest!

Investing is a great choice for many reasons. Not only will it help you build up a nest egg but, it’s also an efficient way to lower your income tax bill! Income that you invest into an RRSP is sheltered from taxes. It’s a smart decision all around!

5. Hire A CPA.

As your business grows it is a good idea to look into hiring a certified professional accountant or CPA. They can help you discover tax breaks, credits and deductions you didn’t know you were eligible for. They can also help you identify what you can claim as an expense and what you cannot. Finally, they can help you keep everything organized and balanced.

 

There are lots of ways to ensure that tax season isn’t a nightmare for the self-employed. Of course, our favourite way is Taxvisors!

If you are looking for help with your personal and business taxes please contact us today!

 

Business Tax vs. Business Income Tax: What you Need to Know

 

Operating a business gives you a handful of dealings in terms of taxes. The form and type of the business you operate determines what taxes you must pay and how you are going to pay them. In this article, you will learn the two types of taxes that most business owners pay and the difference between them.

 

Business tax is the pecuniary value imposed on your business by law which is collected annually. The tax rate can depend on the tax regulation in your state as part of its revenue-generating mechanism. Business income tax is entirely a different thing. In running a business you need to account for income tax on your profits less the deductions that you can get in a specific tax year.

 

Can you evade business taxes and business income taxes? The answer is No. What most business owners often mistaken is thinking that they can be excused for not paying taxes, therefore intentionally avoiding the payment of yearly taxes.. In result, the business owner can be penalized for such act.  A person may be able to avoid payment of huge taxes by starting off with a small business, rather than building a full blown business for startup.

 

The perk of being a small business owner is that a person is able to deduct business expenses from the taxable income. These deduction somehow soften the blow of having to acquire tools and materials needed for business operations such as computer, office supplies, health insurance, and retirement benefits.

For instance, your marginal tax bracket is 25 percent, if you purchase a computer for $1, 000, you can get a tax deduction of 25 percent allowing you to cost only $750. Oftentimes business owners also overlook some potential tax deductions such as those itemized deductions provided in the state regulation.

 

It is imperative not to get carried away with purchasing things for your business though, just because you have tax deductions. You need to understand that tax deductions are not designed to make your business free. It is imposed by the government to allow businesses to elevate despite the burden they have.

 

Tax deductions can only apply for those things that are badly needed for your business operations. However other things that are for pure convenience and luxury cannot be added. The higher the income of your business, the higher your business income tax will be.

 

Being a responsible business owner and tax payer can often save you from extreme financial dilemma especially during times of assessment. When you have paid your business taxes, it means your business will be free from penalties should you miss your taxes intentionally.

 

Now that you know the difference between business tax and business income tax, including tax deductions there is no more reason why you would want to delay or evade payment of taxes. While it is true that taxes can really be expensive, the slips of paper you cram in your office drawer can help you a lot.